Ikhwanomics

The Muslim Brotherhood has a plan for Egypt’s economic recovery

The Ikhwan’s economic manifesto to overhaul Egypt’s collapsing economy charts a pragmatic course between state-run economics on the left and crony capitalism on the right. But given the scope of the economic challenges before it, arguably the biggest thing the world has to fear from an Islamist-run Egypt is that its leaders don’t have the answers, either.

Salafists protest against IMF Managing Director Christine Lagarde's visit to Tunisia. The Freedom and Justice Party in Egypt will have to contend with the hardline Salafist element in parliament.

In early February, a senior official of Egypt’s Muslim Brotherhood warned that without a global effort to save Egypt’s troubled economy, the largely peaceful revolution that toppled dictator Hosni Mubarak could return, specter-like, as a calamitous “hunger revolution.”

“The democratic transition in Egypt is hanging in the balance,” Khairat El-Shater—who is touted in the Egyptian press as the next Prime Minister—told The Washington Post. “We strongly advise the Americans and the Europeans to support Egypt during this critical period as compensation for the many years they supported a brutal dictatorship.”

The Brotherhood may soon find itself shouldering Egypt’s post-revolutionary burdens on its own.Given the decades-long estrangement between Washington and the Ikhwan, as the Brotherhood is known in Arabic, Shater’s remarks were remarkably bold. Half a century ago, both sides connived in concert against their mutual enemy, Gamal Abdel Nasser—a tactical alliance that ended with Nasser’s death in 1970 and the Ikhwan’s rejection of the Egyptian-Israeli peace accord nine years later. During the Mubarak years, Brotherhood members condemned the US for supporting a corrupt and pernicious regime at the expense of the Egyptian people, and contact between the two sides was highly restricted, if not prohibited outright, by Washington.

With Mubarak’s ousting, argued Shater, and with the Brotherhood emerging from recent free elections in control of half the parliament, Washington has been caught on the wrong side of seismic change in the heart of the Arab world. Even now, he complained, the Obama administration’s outreach to the new Egypt is “nothing more than slogans.” Without a clear US endorsement, it will be all but impossible to lure badly-needed foreign investment back to the country. Egypt is facing an economic crisis, he said, “and if there is a collapse, the interests of everyone in the region will be impacted.”

The implication of Shater’s comments was twofold: they hint at a willingness among Brotherhood leaders to preserve the secular quality of Mubarak’s economic and foreign policies on the basis of mutual respect, and suggest that the Egyptian economy may be in even worse shape than was generally assumed given revelations that economic data under the old regime had been cooked or obscured.

Weeks before Shater’s interview, the Brotherhood announced it would recognize Egypt’s peace treaty with Israel, along with industrial zones operated jointly between the two sides. It also assured tour operators that it would not support legislation, popular among ultra-conservative Islamists, that would outlaw the sale of liquor and make it a crime for women to sport immodest swimwear on the nation’s beaches. Ikhwan leaders had declared they were not opposed to privatization and they acknowledged the need to reform public welfare systems as well as the government’s vast and budget-busting web of subsidies.

Perhaps most significantly, after Cairo’s military-led government rejected an offer of $3 billion in emergency loans from the International Monetary Fund, Ikhwan members met with an IMF delegation in January to discuss a slightly larger bailout plan. Asked how Ikhwanists (of all people) could negotiate for such loans despite Muslim strictures against usury, a Brotherhood economist said there would be no conflict so long as the funds were obtained “as a last resort” and were made available on fair terms.

Needless to say, supping with the IMF, treating with Zionists, lifting subsidies, and tolerating bikinis and booze goes down much easier with neoliberal economists in Washington than they do with ordinary Egyptians. Small wonder that many liberal activists, as well as disaffected ex-Ikhwanists, see little difference between the Brotherhood in power and the regime it replaced. “The Muslim Brotherhood wants a free market with less corruption,” says Ibrahim Eissa, a liberal activist and publisher. “Beyond that, institutionally there’s been no real change.”

The Ikhwan’s refusal so far to redeem its critics’ worst fears about an Islamist takeover follows a similar evolution in Tunisia, where the moderate Islamist Ennahda Party won some 40 percent of the national legislature in recent elections. Like the Brotherhood, Ennahda is officially opposed to radical interpretations of the faith and favors free markets along with a strong social safety net. Both groups are courting favor with wealthy patrons in the Persian Gulf, many of whom are fearful of the democratic process that brought these parties to power but are compelled to peddle their influence nonetheless. “The Gulf states are following all of this very closely,” said a Western diplomat in Cairo. “For them, the only thing worse than getting involved in politics of this sort is not getting involved at all.”

Skeptics who suggest that the Ikhwan’s embrace of secular-minded policies is a means to the strategic end of establishing a hard-line Islamist state overlook the symmetry between the economic traditions of the old Islamic empires—free trade, low taxes, a light regulatory hand—and modern neoliberalism. The prophet was, after all, a merchant with a mercantile sensibility. Not for nothing—as Brotherhood members are quick to point out—did Ronald Reagan suggest that the philosophies of Ibn Khaldun, a 14th century Islamic scholar, anticipated the Laffer Curve six hundred years before than modern economics.

“They are pro-market and they want to attract investment from the Gulf,” said political commentator Osama Harb about the Ikhwan leaders. “They know they won’t save the economy by banning alcohol. They will be as moderate as the Egyptian people.”

By default if nothing else, the Brotherhood may soon find itself shouldering Egypt’s post-revolutionary burdens on its own. For much of the last year, it has worked with the military junta that has been running the country since Mubarak’s ouster to ease the transition to civilian rule. But the junta may soon be forced to dissolve itself for its inability to address both a distressed economy and a near-breakdown in law enforcement, particularly after the deadly riots that followed a soccer match early this month in Port Said.

Should the junta fold, Egypt’s problems would be almost exclusively a Brotherhood problem given its dominant grip on parliament. (Wisely, they have reached out to form a coalition with liberal groups, no doubt to share the blame should the economy continue to degrade; just as wisely, the liberals prefer to remain in opposition.) The country is facing a currency devaluation due to an ill-fated decision by the generals to defend the Egyptian pound amid fears of political and economic breakdown. Over the last twelve months, the country has halved its foreign reserves to less than $18 billion, or about four month’s worth of imports. Though down from peak levels, the country still suffers a net outflow of foreign investment. Inflation, currently at about 10 percent, is expected to rise significantly in the event of a devaluation. The property market is flat and tourist arrivals, an important source of hard currency, remain at record lows.

To make matters worse, a cheaper Egyptian pound is not likely to do the country’s exporters much good. For one thing, long-term forecasts for the euro are nearly as grim as those for the pound, which means Egyptian products will enjoy little in the way of comparative advantage in their largest export market. And while Egypt’s industrial base doubled in size over the last decade—in part a result of the previous regime’s aggressive, if corrupt, privatization program—the Mubarak regime did little to encourage manufacturers to produce more value-added goods.

“Tourism, construction, and agriculture constitute a significant portion of total employment in this country,” said Wael Ziada, head of research at EFG-Hermes, an Egyptian investment bank. “That said, with a large trade deficit, devaluation will equal inflation with no dividends and there may be political unrest.”

Unless the Egyptian government can stem the country’s chronic capital flight, an IMF official told The Majalla, international lenders will have a hard time delivering the kind of massive cash bailout the economy needs. “We can’t just administer a facility of $2 billion a month,” said the official, referring to Egypt’s average monthly rate of foreign exchange losses. “They have to come up with a plan.”

Hints that the economy’s vital signs have been manipulated over the years have only added to investor anxieties. Economists and analysts suspect Mubarak advisers understated the size of the working-age population and perhaps even its rate of growth, for example, which implies the outlook for unemployment is worse that was previously thought. Illiteracy rates, according to aid workers, are almost certainly higher than the official 30 percent level; declining farm output, which has been dwindling steadily over the years, is believed to be deepening at a rate that is obscured by earlier estimates.

Given the scope of the economic challenges before it, perhaps the biggest thing the world has to fear from an Islamist-run Egypt is that its leaders don’t have the answers, either. The consequences of failure are rendered graphically by the number of Egypt’s impoverished and working poor who line up each day at state-managed bakeries to buy subsidized bread. From their dimly-lit kitchens, bakers working double shifts produce thousands of flatbread loaves with discounted flour made available by the government. Often, however, there aren’t enough loaves to go around because some bakers sell their flour allotment on the black market.

“Everything depends on the black market,” says the manager of a government-run bakery in Cairo’s Zahret Ghamra district, a litter-strewn and congested market for cheap imported goods. “If the other bakeries are skimping, more people come and buy from us.”

Owing to the country’s inefficient supply chains and heavy reliance on imported agricultural products, the price of food rises about 40 percent faster than the overall inflation rate. As prices rise, so does black market demand for such discounted commodities as heating oil and sugar, a convergence of factors that could lead to shortages of staple goods. Petroleum, another heavily subsidized product in Egypt, is already in short supply and many filling stations are rationing sales of gasoline.

Brotherhood leaders have spent years mulling over ways to restructure the Egyptian economy—largely while passing the time in Mubarak’s jails—and in January they unveiled a plan for a complete overhaul. It includes, among other things, writing a constitution based on the US model that guarantees investor rights and the transparency of public institutions. It would promote a low, graduated tax rate and it would outlaw monopolies in fidelity with a Koranic admonition, “He who brings commodities to the market is good, but he who practices monopolies is evil.” It would also reform wasteful fuel subsidies, which it reckons would generate an estimated 65 billion pounds in revenue annually.

As part of an urban re-development program, the Brotherhood would relocate residents from the densely populated Nile Delta to make way for vast swaths of arable farmland, an initiative it says will create 6.5 million agriculture-related jobs. The Suez Canal would be modernized to enhance remittances and Egypt’s tourist destinations would be upgraded to compete with the world’s great natural and man-made attractions. The plan also calls for ambitious infrastructure development, including building new international airports, seaports and a state-of-the-art national railway. The country’s ample natural gas reserves would be leveraged to heat all homes and work places.

Such projects would be underwritten through a mix of private and public investment. Islamic banking, which promotes equity stakes as the principal means of finance as opposed to loans, would be introduced wherever possible to limit debt. Similarly, loss-making state enterprises may be stabilized through venture capital-like schemes rather than sold outright to foreign investors, which Egyptians have come to regard as a particularly painful manner of divestment.

As manifestos go, the Brotherhood’s economic recovery plan is at least as thoughtful as those trotted out by their secular counterparts in developed countries. (Witness the inanity that stands for policy debate among Republican Party presidential hopefuls in America.) By promoting the virtues of the free market while minding its perils, the Ikhwan appears to be charting the only course remaining between state-run economics on the left and crony capitalism on the right, both of which have proven unworkable.

Stephen Glain is a freelance journalist and author based in Paris. For two decades, as a correspondent for the Wall Street Journal and Newsweek, he covered Asia, the Middle East and the policy sausage factories of Washington, D.C. He is the author of two books: Mullahs, Merchants, and Militants: The Economic Collapse of the Arab World (St. Martin’s Press, 2004) and State vs. Defense: The Battle to Define America’s Empire (Crown Books, 2011).